It will also be closely monitored by officials from the Department for Social Development.

The funding application was drawn up after widespread consultation with UDA members in a series of meetings throughout Northern Ireland.

The UPRG claimed there was a genuine desire to change and for the UDA to become a community association rather than a terrorist group.

In return for the funding, the government wants to see the end of all UDA violence and criminality, including extortion rackets and drug dealing.

If there is no noticeable reduction in these activities, the UPRG has been told that the funding will be withdrawn.

'An integral part'

Secretary of State Peter Hain said: "For some time now, the political leadership of the loyalist community associated with the UDA has wanted to move the whole of the community away from paramilitarism and gangsterism and criminality onto a democratic political path.

It is going to a legitimate organisation which has existed for some 20 years and which has been at the forefront of peace-building